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Law360 (April 1, 2020, 3:13 PM EDT) -- USA Rugby Football Union Ltd. limped into a Delaware Chapter 11 with at least $6 million in debt late Tuesday, reporting that the global COVID-19 pandemic and a related suspension of sanctioned revenue-producing competition dropkicked its already struggling league into hopeless insolvency.
Chief Executive Officer Ross Young said in an initial court declaration that the bankruptcy opened just ahead of an out-of-reach, arbitration-related payment deadline in a $40 million dispute over alleged perpetual rights to hosting USA Rugby's seven-member team series tournaments.
Although USA Rugby avoided trial in its dispute over the rights with United World Sports LLC and American International Media LLC, Young said, the battle has moved to arbitration, "and the debtor cannot afford the $100,000 retainer sought by its counsel; the answer to the arbitration complaint is due 1 April 2020."
The 120,000-member American rugby organization had been seriously hurting since 2018, when cost overruns threatened the Rugby World Cup Sevens tournament in San Francisco.
A $4.4 million bailout loan from the World Rugby organization and agreements to an administrative shakeup saved the San Francisco event, Young said. But USA Rugby was left with hefty debt to World Rugby and was playing in the red while battling United World Sports over tournament rights.
World Rugby later chipped in another $1 million and USA Rugby cut expenses pending a planned major refinancing push at a rugby "Expo" event in May, Young said. Those hopes were deflated by USA Rugby's pandemic-related suspension of all events on March 20.
"As a result of this suspension, the dues revenue previously forecasted failed to materialize and the May timeline shortened to March," Young said. "As a consequence, the debtor would be unable to operate long enough to secure relief at this expo."
Young said the organization entered Chapter 11 with about $1.1 million in hand, including restricted funds, and about $6 million in liabilities, without taking into account the $40 million United World Sports claim. Only about $468,000 of the group's debt is secured, under an agreement with JPMorgan Chase Bank NA.
World Rugby, meanwhile, holds about $3.6 million in unsecured claims. The balance of debt is held in the form of unsecured credit card and legal bills, hotel and travel expenses, potential liability for Olympic event tickets and trade and vendor debt.
Although details had not yet been filed with the court, USA Rugby said that it planned to seek post-petition financing and authority to grant super-priority administrative expense rights as part of its case.
The company's initial petition listed USA Sevens LLC, an affiliate of United World Sports, as the holder of an unsecured $40 million claim against USA Rugby, with the $3.6 million owed to World Rugby the second-largest unsecured debt and the $278,000 owed to law firm McGuireWoods LLP ranked third.
The case was assigned to U.S. Bankruptcy Judge Brendan L. Shannon.
USA Rugby Football Union Ltd. is represented by Mark M. Billion and Peter K. Schaeffer of Billion Law.
--Editing by Alyssa Miller.
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